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Whither pride project laws?

The only parties that gain from delayed projects are contractors (mostly, but not always), their enabler politicians and consulting engineers

May 1, 2017-On March 15, the Parliamentary Committee on Development (PCD) took notice of the dismal progress in the design and construction of the country’s priority projects. They “directed the National Planning Commission to submit the draft of a law on national pride projects in Parliament within a month to expedite implementation of schemes considered strategically important for overall development of the country”.

That the PCD took notice that the priority projects strategy had not worked is a positive development, but whether the law drafted as instructed in a period of a month will be effective in timely delivery of the projects is questionable. A review of some of the priority projects will help us understand the issues.

Melamchi project

Take the Melamchi project for example. Experience elsewhere would suggest, even with the technology currently used by the tunnel contractor, the water tunnel could have been completed in six years at the most. Yet it is still under construction—26 years after the late prime minister Krishna Prasad Bhattarai promised to “wash Kathmandu’s roads with Melamchi’s water “ and 16 years after the project started in 2001.

The construction contract with China Railway 15 Bureau Group was terminated because of the alleged contractors’ non-performance (albeit the Melamchi Water Supply Development Board could not subsequently prove it in a Chinese Court and recover the performance

guarantee bonds). The project was on hold for some time until a second contractor was appointed. The tender price of the second contractor was $99million, from the original estimate of $67million—an increase by 48 percent.

It would appear our government did not learn anything from the Melamchi experience. The expansion of Tribhuban International Airport; the upgrading of airports in Bhairawa and Pokhara; the widening of Kathmandu’s Ring Road and a number of hydroelectric projects are also mired in contractual disputes and the progress, if any, is anaemic. The price of all of these projects is sure to rise substantially. The Kathmandu-Terai “Fast Track” is a sorry tale of a project gone south due to vested political interests and the lack of understanding of the project’s

complexities by its proponents.

The successful delivery of large engineering projects is rather complex and needs a well-planned approach. At the outset, a rigorous and objective analysis has to be done that spells out the optimal construction and maintenance modality on a case-by-case basis. Inputs from specialists from various disciplines go into the process along with the stakeholders’ feedback. A project definition and delivery plan is then thoroughly considered, vetted, and agreed upon by the project’s owner—in this case the government of Nepal. Once a project is thus developed, it is imperative for the owner to ensure the project area is free from encumbrances. For example, land or properties are acquired, and utilities are either relocated or there exists a firm schedule to do so. Only then can a large scale project go into a procurement/contracting phase. Otherwise there is plenty of evidence that the owner and the contractor start off on a litigious note from the first day of the contract.

Risk assessment

Construction risks are major handicaps in a project’s progress. Risks arise when, during construction, the contractor encounters ground conditions unforeseen at the design stage or other similar problems not covered by the contract. An equitable contract has provisions to share potential risks between the owner and the contractor. So that appropriate risk-sharing terms are built in the construction contract, the owner, at the design stage, anticipates all possible risks at every stage and takes them into account, both in terms of their impact on project costs and schedule. However, risk assessment, as part of project definition/development, does not seem to be included in Nepal’s engineering practice. In absence of a risk management mechanism in the contract, as soon as the contractor thinks a risk has been realised, a dispute arises between him and the owner.

It is fairly normal during contract administration for the owner to blame the contractor for non-performance in specific aspects of the contract and for the contractor to attribute the delay to the owner’s failure to comply with his side of the deal. But in the vast majority of the projects, where the tender documents are clear and identify unambiguously the responsibility of each party in the contract, disputes between the contractor and the owner are resolved without significant impact on the project cost and schedule. It is unusual for the owner to terminate contracts, because the cost of termination—both financial and in terms of schedule—is huge. And the termination hurts the image of both the owner and the contractor. No reputed contractor wants to work with an owner whose record of contractor-owner relationship is poor.

Delayed projects cost money not only because the country loses by not having the project, but also because the project price escalates due to inflation, change in foreign exchange rates and delay claims by the contractors. It can also cause contractual disputes, leading to expensive legal challenges. Furthermore, courts generally side with the contractor in a dispute, reasoning that under the lex situs principle, the owner has better knowledge of the site conditions and thus holds an unfair advantage over the contractor. This means the public do not get the service from the project in time and even when they do, they have to pay more for it. The only parties that gain from delayed projects are contractors (mostly, but not always), their enabler politicians and consulting engineers. The ordinary public and the nation are the biggest losers.

Structural problems

Most of the large projects in Nepal suffer from one or more of the following: unclear project definition; deficient design standards (for example, bulk water distribution pipes in Kathmandu for the Melamchi project); deficient terms of reference in the employment of consultants; poor consultants selection criteria; deficient design; unclear project procurement methods; poor contractors selection criteria; poor construction tender documents; poor contract specifications (I was once involved in a tunnel project in Nepal where the tunnel was to traverse through silt and sand, but the specification was written for hard rock); lack of transparency and traceability of the project process; incomplete land acquisition at the time of project award; budget constraints; incompetent or uninspired regulatory authorities; lack of accountability and professionalism of project authorities; political interference, corruption and, above all, lack of political will to deliver the project in a transparent and honest manner.

If we are ever to make our project delivery worthy of pride and not just a pipe dream, a detailed independent study of the project design and delivery mechanism for a few select hydropower, municipal infrastructures (roads, pipelines) and large road projects should be conducted urgently. The law and the regulations that follow should incorporate findings from the study.

The fundamental question that NPC needs to ask and understand before they start drafting the law is why is it that almost all of our projects are behind schedule, whereas in other countries, similar projects are mostly completed in time and within budget. The law will not be worth the paper it is written on unless the authors of the law understand structural problems resulting in a delay in the design and execution of our priority projects.

The drafting of the law will require significant inputs from stakeholders and practitioners. It is worth remembering that because of the increasing cost and contractual disputes in building tunnels in the United Kingdom, about two decades ago, contractors, insurance companies and engineers collaborated to develop a code of practice for the design and construction of tunnels. Since then, the number of disputes in tunnel contracts in the UK has reduced significantly. And it took more than a few months to come up with codes acceptable to all stakeholders.

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